DORRANCE v. U.S.
877 F.Supp.2d 827 (2012)
Bennett and Jacquelynn DORRANCE, Plaintiffs,
UNITED STATES of America, Defendant.
United States District Court, D. Arizona.
July 9, 2012.
G. MURRY SNOW, District Judge.
Pending before the Court are cross-motions for summary judgment. (Docs. 64, 67). For the reasons stated below, both motions are denied.1
In 1995, Plaintiffs formed the Dorrance 1995 Legacy Trust (the "Trust"), which in turn purchased five life insurance policies in 1996. (Doc. 67-1 ¶¶ 16, 17). The policies were purchased with The Prudential Insurance Company of America ("Prudential"), Sun Life Assurance Company of Canada ("SunLife"), Phoenix Home Life Mutual Insurance Company ("Phoenix"), Principal Life Insurance Company ("Principal"), and Metropolitan Life Insurance Company ("MetLife"). (Doc. 65 ¶ 1). In the aggregate, the policies provided $87,775,000.00 in coverage. (Doc. 67-1 ¶¶ 19-23). The Trust purchased the policies in the anticipation that the benefits would provide liquidity to pay Plaintiffs' estate taxes upon their death, so that Plaintiffs' heirs would not need to liquidate the family stock portfolio to pay such taxes. (Doc. 67-1 ¶ 17).
All of the policies were purchased with mutual insurance companies. In a mutual insurance company, the policyholders have an interest in the company itself in addition to holding a policy. This interest provides the policyholder with certain rights, including the right to vote on corporate decisions and the right to receive the mutual company's surplus should the company liquidate. (Doc. 65 ¶ 7; Doc. 67-1 ¶ 6).2 Plaintiffs describe these rights as "ownership" rights, while Defendant describes them as "membership" rights. (Doc. 64 at 2; Doc. 67 at 2). At this stage in the litigation, the Court will refer to these rights as "mutual rights."3 Policyholders cannot sell the mutual rights separately from their underlying policies. (Doc. 65 ¶ 9). If a life insurance policy held with a mutual insurance company is terminated, the mutual rights are extinguished as well. (Doc. 65 ¶ 10). The five mutual life insurance companies demutualized through processes that began in 1998, 1999, and 2000, and culminated in 2000 or 2001. (Doc. 65 ¶¶ 32-38). In the process of demutualization, a mutual company changes its corporate structure into that of a stock company, often through a procedure governed by state statute. (Doc. 67-1 ¶ 39; Doc. 65 ¶ 24). Policyholders must vote to approve a demutualization before the process can proceed. (Doc. 67-1 ¶ 40).4 Prior to seeking policyholder approval, at least one of the companies promised policyholders that if they voted for demutualization, premiums would not increase, and in fact none of the premiums Plaintiffs paid increased after demutualization. (Doc. 65 ¶ 39; Doc. 79-1 ¶ 39).